Pricing Pictures

Today is the one year anniversary of Fixed to Flexible. There have been almost 17,000 reads of the ebook and I have been contacted by people all over the world who were helped.

I launch a new project today called Pricing Pictures. What I wanted to do was show in a very simple way that pricing has a multitude of dimensions and those dimensions create opportunities for new business models, continuing the message I started in Fixed to Flexible. And I do it all in ten pages.

Hope you enjoy Pricing Pictures and share it with others.

P.S. Happy Groundhog’s Day!

Update (Feb 3 6:30AM PT): Pricing Pictures is being featured on the homepage of Slideshare as the Top Presentation of The Day. We just past 2600 views.

How Authors Can Use Twitter To Help Others

Chris Brogan wrote this week about using Twitter as a real-time prospecting tool as an author. In his case, he was looking for people who were at Barnes & Noble and might be interested in his book Trust Agents. This is great example of how authors could be using Twitter. Is there a more opportune moment to talk to a reader then when they are standing in front of hundreds of books?

In his Database of Intentions, John Batelle describes sites like Twitter and Facebook as collectors for “What I’m Doing?” and “What’s Happening?” For authors, these sites also capture the frustration of the moment; what someone is not doing or what is not happening. This gives authors another place to engage people whose problems they can help solve.

I have a saved search on Twitter for “business” and “books.” This smaller view of tweet does two things. First, I can see people asking for help on what books they should be reading.

This was a tweet I saw from JoAnn Jordan this morning:

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Here was my response:

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The link directed her to my website for my best of 2010 blog post. In some cases, I directly people to the list from The 100 Best Business Books of All Time. In either case, that exposes them to me and how I can help if they run across the problem of figuring what what business book they should read next.

The second part is that by listening to what people are saying on Twitter it also shows me what others are sharing as their solutions. JoAnn in her tweet above provides both a solution and a query for more help. Being able to see reviews and lists of businesses books people are sharing lets me share those with others.

Let me also give you two caveats to think about. First, search results are noisy. Some people specifically target keywords to create spam. Sometimes, the context is completely out of place. But even with the noise, I can look through the results for the past day in a couple of minutes and respond or forward posts.

The second is timeliness. Much more than a day and the strength of the intention falls dramatically. I have to treat checking my search results like looking through your email first thing every morning. And email is a good analogy. On Twitter there are a set of people asking for your help. With a little monitoring , you can connect with more people and let’s you help solve their problems.

Build A Classroom

The mantra of social media is “Building your Audience”. The game becomes one of numbers. Who has more followers? How can I get people to become my fans and friends on Facebook?

“Build a Classroom” seems like a better mantra. The best of whom I read each day are always teaching: exposing me to new ideas, making an argument for a needed perspective, showing better tools to getting things done.

My grandmother started her career teaching in a one room schoolhouse, everyone learning together and learning from each other.

Some of the best ideas have been around for a long time.

Writing Advice for Engineers (and Everyone Else)

How to make engineers write concisely with sentences? By combining journalism with the technical report format. In a newspaper article, the paragraphs are ordered by importance, so that the reader can stop reading the article at whatever point they lose interest, knowing that the part they have read was more important than the part left unread.

State your message in one sentence. That is your title. Write one paragraph justifying the message. That is your abstract. Circle each phrase in the abstract that needs clarification or more context. Write a paragraph or two for each such phrase. That is the body of your report. Identify each sentence in the body that needs clarification and write a paragraph or two in the appendix. Include your contact information for readers who require further detail.

— William A. Wood, September 8, 2005 (source/via )

Free to Give

Concord Free Press calls themselves the world’s first generosity-based publisher. Instead of a monetary exchange between reader and publisher, the Massachusetts-based non-profit asks that you give money to someone else when a reader receives a copy of one of their books. They make it all work through donations, low costs, and generously donated time on the part of designers, editors, and printers.  

They ask that readers report their donation online and to date Concord Free Press has raised more than $130,000 for causes around the world. After factoring their costs, the publisher calculates their ROI at more than 800%.

Others are helped too. Founder Stona Fitch used her own novel Give + Take as the first book given away, after the book was orphaned following the departure of her editor. The success and publicity of the whole venture has caused St. Martin’s to pick up Give + Take. The book will be released in May.

Be sure to check out Fitch’s account in Publisher’s Weekly.

There is so much that is interesting about this story. The fact that we could give one thing and expect something completely different in return is wonderful. We also see again that free is a powerful way to spread an idea, but it is not the mailing of free books that creates the success. No, the success comes from the story of what Concord Free Press doing for readers, authors, and the world at large.

Call it “Pay It Forward” Publishing.

Ariely’s April HBR Column

There are an incredible number of insights tucked inside Dan Ariely's column in the April 2010 issue of Harvard Business Review this month.

Ariely manages to squeeze into 500 words how free is scary, that experiments mean someone is going to get short changed, short term myopia, and the illusion of expert advice.

Take clinical medical trials, I said to the team. When testing chemotherapy treatments, some patients suffer more so that, down the road, others might suffer less. I hoped this put it in perspective. Fortunately, I said, price testing household products requires far less suffering than chemo trials.

Still liking the new approach at HBR.

Cool Tools Reviews The 100 Best

Cool Tools is an awesome site for finding things to help get jobs done, whether silicone spatulas, a map of world history, or the lightest items for backpacking.

Today site founder Kevin Kelly reviewed The 100 Best Business Books of All Time. Here is a small excerpt from the review:

[T]heir book is much better than a simple list, and their list is better than most. The two have reviewed, abstracted, and compared all the best 100 in the context of thousands of similar books, unlike say your average Amazon reviewer who may have only read one other business book in his or her life. You get context instead of content. Reading Covert and Sattersten’s summaries of these classics is often better than reading the book itself, and the review is always useful in pointing you to the few books or authors you might actually want to read in full.

The sales of The 100 Best have been up the last couple of weeks, and that doesn’t include all the remaindered/discount copies that were cleared off Amazon when Fixed To Flexible was released.

It is just great to see continued interest in the book over a year later.

P.S. As Kelly points out in his review, we included his 1995 book Out of Control just to make clear any conflicts of interest.

P.P.S. I just posted these additional links on the Hacker News thread:

  1. Here is a bonus chapter about industry books that wasn’t included in the book.
  2. There is also a website where you can submit your favorite business book whether it was included in The 100 Best or not.

“You-Decide” Invoicing

Matt Homann of LexThink lets his customers decide how much to pay him. He calls it "You-Decide" invoicing and it is another real world example of pay-what-you-want pricing. In Matt's case, he found out he wasn't charging enough.

In the Q&A below, Matt and I go back and forth about how it started, how he explains this method to clients, and what it has meant for his business.

Todd: Tell folks, what you do for a living.

Matt: I'm a speaker, facilitator and consultant. Much of my work is with lawyers and law firms, though I also design and facilitate meetings for companies like Microsoft. My blog, the [non]billable hour, focuses on innovative ways lawyers (and other professionals) can serve clients better and make more money.

T: When did you first get the idea for client-decided pricing?

M: I've always hated time sheets, and kept experimenting with ways to price my services that weren't tied to the time it took me to provide them. Since my clients regularly told me that my prices were too low, and that I was giving them a bargain (but one they only recognized once I'd completed the work), I thought I'd let them take the pricing dilemma out of my hands and pay me what they thought I was worth — after they'd received my services.

T: How specifically do you present it to the client (before and after the engagement)?

M: I always give clients the option to pay me what they think I'm worth at the conclusion of the engagement. I explain to them that once we've gotten to the pricing discussion, I trust them to treat me fairly. When they agree to my novel approach, they get my "You Decide" invoice that asks them to write in an amount for my fee and give me an explanation for why they paid what they did. And even when clients would rather pay me a quoted price, I still give them a money-back guarantee.

T: What benefit do you think you get for creating this kind of commercial relationship with your client?

M: I'm convinced that by trusting them first, they return the favor. I feel like I'm entering into a mutual trusting partnership with many of my clients very early into our relationship. And, because my price isn't set based upon anything other than the final result, we're both free to tweak the engagement (things like length of time, desired outcome, etc.) as we plan more. Finally, because I know the result is the ultimate measure of my compensation, I find myself motivated to deliver the best experience I can every time.

T: Can you give some quantitive indicator for how this fee structure has affected your business?

M: Since I've been doing this, my sense of the value I give my clients has increased. I've recognized that my clients don't care about the time I spend working for them, but rather the results they get from working with me. Quantitatively, my income has doubled in the past year, because clients pay me more on my blank invoices than I would have charged them. I've also increased my per-engagement price (when I'm asked to give one). I know charge roughly three times what I would have quoted before my pricing experiment began.

T: Most of the pay-what-you-want experiments have been in media specifically digital media. 60 to 80 percent of customer choose free in those cases. What do you think makes it work in a consulting services business.

M: My clients see me doing the work and they experience firsthand the fruits of my labor. In digital media, there's not such a direct correlation between the laborer and the final product. One other thing I've found is that because I often work with people who've put a value on their time (like lawyers, accountants, etc.), they're less apt to think my time has no worth.

For some more thoughts on pricing, check out the ebook Fixed to Flexible.

Hard-Wired

The idea of sharing is deeply routed in our early hominid brains. French anthropologist Marcel Mauss in describing the gifting process in human culture said “There is an obligation to give, and obligation to receive, and an obligation to repay."1

Our ancestors’ roaming existence in small bands required a set of behaviors that facilitated trusting relationships. Our willingness to cooperate with strangers could mean the difference between survival and extinction. Trade and commerce are only possible with the behavioral trifecta that Mauss describes.

Herbert Ginitis , Emeritus Professor of Economics at the University of Massachusetts, adds another important nuance. His research suggests our cooperation is conditional. We’ll work with others as long as they treat us fairly and if we are wronged we will punish those who have behaved unfairly, even if we incur costs by doing so. The cycle of giving and receiving only work when the threat of punishment for unpaid debt looms.2

Notes:
1The Gift by Marcel Mauss
2The Origin of Wealth by Eric Beinhocker and Ginitis 2000

Try This

Visit any Sam’s Club on a Saturday morning and you will see two things: enormous crowds and sampling stations. In my local warehouse store, there must a dozen representatives from CPG1 Nation there to offer me a small sample of the goodness waiting in the box, bag or bottle they are promoting. This is certainly a form of Free that we recognize.

Sampling is an incredibly powerful method of marketing. The “new customer consultation” allows the prospect to experience what it will be like if they change dentists. The Dixie cup of pineapple-pomegranate juice from a smiling attendant lets the prospect taste the product while standing arms reach from the 128 ounce jar (“…and today’s we are offering a coupon for two dollars off.”)

Robert Cialdini tells us that this form of free has an incredible power over us. He believes we are programmed to always return a favor. “Many people find it difficult to accept a sample from the always-smiling attendant, return the toothpick, and walk away. Instead, they buy some of the product, even if they might not have liked it.2

Notes:
1 – Consumer Packaged Goods
2 – from Page 27 of Influence: The Psychology of Persuasion.

Idea Arena Podcast – The 1% Windfall with Rafi Mohammed

http://player.soundcloud.com/player.swf?url=http%3A%2F%2Fsoundcloud.com%2Ftoddsattersten%2Fidea-arena-podcast-one-percent-windfall-interview-with-rafi-mohammed Idea Arena Podcast – The 1% Windfall Interview with Rafi Mohammed by toddsattersten

In this interview, I talk with Rafi Mohammed about his new book The 1% Windfall: How Successful Companies Use Price to Profit and Grow.

"The strategy of pricing involves acknowledging that customers have different pricing needs and then making efforts to profit from these differences. Customer different in three primary ways"

  1. Desire a different pricing plan -> Pick-a Plan

     

  2. Have unique product needs -> Versioning

     

  3. Value a product differently -> Differential Pricing"

-The 1% Windfall, p28-29

The bulk of the interview is around those three pricing strategies and how business can expanded their views about how to use pricing to improve profits.

The 1% Windfall is one of the books I recommend in the ebook Free to Flexible: Four Simple Lessons About Cost, Price, Margin and The Options Available to The 21st Century Business. You can download the ebook here.

People Love Free

On January 7th, 2010, Sparkfun, a Boulder, Colorado based electronics supplier, decided to give away free merchandise. Each customer who placed an order that day received $100 in free goods. No minimum order. No code needed at checkout.

Ten minute before the web store opened, Sparkfun’s servers were already buckling under the load. Their company name was appearing in four of the top ten search terms on Google Trends. It took one hour and 44 minutes for the company to pass their pre-announced limit and give away $100,587.

This extravaganza was originally announced on November 23rd, just ahead of the Thanksgiving holiday weekend. Founder Nate Seidle said in a blog post that he was inspired by Chris Andersen’s book Free and wanted to give back to his customers. I found out about this incredible offer from Chris Andersen himself that morning via his Twitter feed. In response to the offer Andersen said:

“Yikes, what have I done?”

Indeed.

You might be interested in the ebook Free to Flexible: Four Simple Lessons About Cost, Price, Margin and The Options Available to The 21st Century Business. You can download it here.

Seth’s Two Lemonade Stands

Do yourself a favor and start by reading Seth Godin’s post titled The Lesson From Two Lemonade Stands, it is going to be a classic that people refer back to.

Will Weisser follows up with a great post on the Portfolio blog connecting Seth’s lemonade stands to every book he has written for the publishing imprint. Love that observation.

Jonathan Fields also wrote a great response and says having fun is what Seth is getting at.

The Convenience of Good Enough

Robert Capps wrote a great piece for Wired in September called The Good Enough Revolution: When Cheap and Simple Is Just Fine.

He uses the Flip Camera, the MQ-1 Predator, and micro health clinics as examples of products that find huge success for providing the minimum level of capabilities to get the job done:

The attributes that now matter most all fall under the rubric of accessibility. Thanks to the speed and connectivity of the digital age, we’ve stopped fussing over pixel counts, sample rates, and feature lists. Instead, we’re now focused on three things: ease of use, continuous availability, and low price. Is it simple to get what we want out of the technology? Is it available everywhere, all the time—or as close to that ideal as possible? And is it so cheap that we don’t have to think about price?

This gives further support to Trade-Off framework with Capps’ Good Enough equating to Kevin Maney’s Convenience.

There is one thing I didn’t include in the original review of Trade-Off. Maney says technology is constantly pushing the outer edges of both convenience and fidelity. Capps’ piece illustrates that well.

Book Review – Trade-off by Kevin Maney

Tucked in Neal Stephenson’s wonderful book Snow Crash is this comparison in a fictional future where all highways are owned by corporations:

CSV-5 has better throughput, but Cal-12 has better pavement. That is typical—Fairlanes roads emphasize getting you there, for Type A drivers, and Cruiseways emphasize the enjoyment of the ride for Type B drivers.

Author Kevin Maney recognized that we make comparisons and choices like this every day, sometimes taking for the fastest route while other times opting for the best ride. Maney says in his book Trade-Off the only path to success is for companies to concentrate on one of two those needs. Pursuing both is the path of failure.

Maney uses the words convenience and fidelity to describe the opposing needs. The wide availability and low cost creates convenience, while fidelity combines the experience of purchase with the prestige of the brand and the way it reinforces our identity. Our choice of easiest versus best is complicated, flipping back and forth based on the needs of the moment.

Think about hiring an employee. A call to Kelly Services will conveniently fill the open position tomorrow. Pick up the phone, dial Spencer Stuart, and they’ll start a comprehensive search for the best candidate in the world. Both approaches fulfill the need in completely different ways and with understandably different results.

If this sounds familiar, the convenience/fidelity trade-off is another route at the well worn discussion of transactional versus relationship-driven businesses. Others have described the tension as price versus prestige. John Hagel and Marc Singer went as far as suggesting that companies should be broken up along the lines of infrastructure management (convenience), product innovation (fidelity), and customer relationships (fidelity) because the demands of each where so unique.

Maney addresses the challenge of trying to do both, describing it more as an impossibility. In the dual pursuit of convenience and fidelity, Maney says companies chase a mirage and over time are sucked into a place of increasing irrelevance where customers understand less and less why they need your products. 35mm film, movie theaters, and Starbucks all serve as anecdotes.

Some are going to read Trade-Off and say they have seen this play before. Maney is surely tapping a recognized strategic tension, but the updated vocabulary and examples are refreshing, a good reminder to the challenge that all companies face between satisfying the convenient now and the high-resolution, 700 horsepower, oceanfront, 24K gold plated image floating in their customers’ heads.